Every Landlord's Guide to Finding Great Tenants

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Every Landlord's Guide to Finding Great Tenants

The comprehensive resource. New edition!

Janet Portman

June 2017, 4th Edition

Finding tenants is a landlord's most important (and most risky) decision -- learn how to do it safely and legally! Let this book guide you through the process of attracting, screening and selecting the best renters available. Get timely advice on:

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Protect your investment!

Finding new tenants who will pay on time, respect your property, and stay for an extended period, will make your life easier—and your business more profitable.

This book guides you through the process of attracting, screening, choosing, and getting the best renters possible. Just as important, it shows how to avoid problem tenants. You’ll learn how to:

avoid rental discrimination complaints

effective advertising

screen tenants over the phone

show the unit

evaluate rental applications

request and examine credit reports

check references

make a rental offer

reject applicants

and much more.

Every Landlord's Guide to Finding Great Tenants provides dozens of downloadable forms and checklists for every step, with easy instructions to fill them out. This edition has been fully updated to reflect the latest changes in the law in your state,

Be careful what you say............................................................... 5

Put it in writing and keep good records........................................ 5

Screen all occupants and roommates.......................................... 7

Get professional help or advice when you need it......................... 8

How to use the Landlord’s Forms Library........................................ 8

Why good record keeping is so important—and how to do it......... 10

Make a new marketing folder every time you begin rerenting efforts....10

Create a file for applications you receive for this property......... 10

Make a file for your chosen tenants........................................... 11

Tenants are your most valuable asset, and choosing good ones is the most important decision landlords make. A bad choice can result in damage and lost rent, but even when tenants leave without much fall-out, tenant turnover is expensive: It costs the average landlord two to three times the monthly rent every time tenants change. These costs include lost rental income, advertising and screening costs, and the value of your time to pull together and run the whole tenant selection show.

Good tenants do more for your bottom line than minimize your turnover rate. Your business will prosper in other ways, too:

You’ll avoid costly discrimination complaints and lawsuits.

You’ll save the time, money, and headaches of terminating a tenancy or filing an eviction lawsuit (or fighting a tenant-initiated lawsuit).

Other tenants are more likely to stay put, and

You’ll have a steady cash flow.

Ten ways to keep your rental business profitable

The blueprint for a profitable rental property business is fairly simple and consists of ten basic principles. This section lays out these principles, and other chapters in this book show you how to implement these practices.

Make a plan

Before you escort a prospect through your rental—and even before writing your ad copy—you need a specific plan for getting your place rented. This book provides step-by-step advice on making and following your plan, which has five basic components:

Establish the basic terms of the deal. Decide on the rent, deposit, date available (build in time for repairs and refurbishing), pet policy, number of occupants, length of the rental term (month-to-month or a long-term lease).

Set basic requirements for the resident. Choose a minimum income, number of positive references from employers and current and past landlords, and your criteria for a healthy credit report. Decide whether you’ll do criminal background checks on all applicants who make it through earlier, more basic screening. Determine what policies are nonnegotiable and when you’re willing to be more flexible.

Plan your advertising strategy. What you’ll say in your ad depends heavily on your decisions on your rental terms and resident requirements. Now, where will you advertise? To craft a successful strategy, you need to figure out who will be your likely tenant (such as singles, a family, students), as well as the temperature of the market for rentals like yours.

Prepare for phone calls and showings by having details of your property at hand (such as the exact size of the bedrooms, neighborhood features) and facts about the competition. Your preparation should also include getting your place in shape before you show it to prospective tenants, and working around current tenants (if any).

Show the unit. You can do individual tours or hold an open house. This choice will depend heavily on your market and your personal preferences, and will affect how you advertise.

Implementing your plan will put your rental in front of the tenants who are likely to want to live there, and who are the kind of tenants you want.

Deal with current tenants fairly and respectfully

Although your mission is to find new tenants, you can’t do so without interacting with the set that’s still there. You must respect their privacy and follow state laws on showing their home to applicants. This will help you both avoid legal hassles with departing tenants, and show newcomers that you are an upright landlord who follows the law.

Comply with fair housing laws

You’ll operate at your peril if you don’t know and follow federal, state, and local fair housing laws, which should inform your words and deeds at every step of your selection process. Make choices (on where you advertise, what you say, how you screen, and how you choose tenants) based on sound business reasons, devoid of stereotypes or your personal feelings. Unless you can say, “Any reasonable businessperson in this situation would do the same thing,” you may be applying preferences or assumptions (about particular races, religions, ethnic origins, and the like) that could get you into legal trouble.

Be consistent

Consistently applying your screening and selection criteria is the hallmark of a lawsuit-proof business. Here’s why: Suppose you reject an applicant who has insufficient income, but accept another applicant who has a lower income. If the rejected applicant is a member of a protected group, he may claim that the rejection was due to his religion, ethnicity, or membership in another legally protected group. You’ll have an uphill fight to dispel this claim. The only way to win is to avoid, in the first place, inconsistent application of your tenant-screening and selection criteria and practices. This includes, for example, showing the unit to all who qualify, accepting applications from every interested applicant, and checking references and credit for all who meet your business-based standards.

Maintain some flexibility, especially with tenants who are legally disabled

Wouldn’t you know it—the law tells you to be consistent in one sentence, yet flexible in the next. Yes, it’s true—you must vary your criteria and standards, when necessary, for tenants and applicants who are considered legally disabled. That will happen when the variation is required in order for the person with a disability to live comfortably and safely at your property, and when the change will not be unduly burdensome for you. Chapter 2 explains these rules in detail.

Flexibility is also in order when dealing with first-time renters. Logically, these people would never be able to rent if the lack of a current or prior landlord reference automatically eliminates them. There’s nothing wrong with substituting equivalent criteria for first-timers (such as accepting nonlandlord references), as long as you apply the same approach to all first-time renters.

Understand the Complications of Using a Tenant as Your Manager

Owners of multiunit buildings often hire tenant-managers (some state laws require that a manager live on site for larger properties), and many small property owners who live far away choose a tenant to handle day-to-day issues for them. When screening applicants for the tenant-manager position, understand that you are now an employer as well as a landlord. To avoid legal problems, you must follow employment law basics, understand the tax issues involved, and clarify the role of the tenant-manager. In particular, managers need to be as well versed in fair housing law as you are, because their mistakes will land at your door.

Do thorough screening and rank your applicants

Always take the time to do the checking necessary to assure yourself that a person is a good business risk. Nothing will be gained by hastily choosing a tenant. No matter how certain you are that your instincts will not let you down, or that you’ve learned enough after looking at a credit report (but before talking to references), you cannot afford to take a chance by renting to someone who has a skeleton in a closet that you didn’t open. First, it will cost you time, money, and endless aggravation to get that tenant out; and second, if you shortcut your process for this tenant but not for another whom you reject (and who happens to belong to a protected group), that disappointed tenant might have grounds for a fair housing claim.

Be careful what you say

Protecting your bottom line involves not only what you do (ordering a credit report for every top candidate who has made it past the application review, for example), but what you say along the way—from the first phone call (when tenants inquire about the rental and you do some prescreening) to the last (accepting or rejecting tenants). Ill-chosen words can precipitate a fair housing lawsuit, commit you to promises that you never intended, or sow confusion leading to problems.

Be sure you know how to get the information you need—but avoid fair housing shoals along the way. For example, it’s fine to ask how many people will be living in the rental unit to make sure they meet your reasonable occupancy limit, but asking about the ages and sex of the occupants, and whether they are married, may be an invitation to a lawsuit.

Though it’s tempting, don’t puff or overhype your rental. It’s fine to be enthusiastic and extol the benefits of your property, and it’s necessary in competitive markets. But promising things that are only remote possibilities (such as that a parking space will open up soon) may lead to trouble. The bottom line: Deliver what you promise.

Finally, clearly explain to tenants your key terms, policies, and expectations, and do so early in the screening process. You’ll avoid wasting time on inappropriate tenants or tenants who want something else (such as a property that allows pets).

Throughout this book, you’ll see scripts with typical applicant questions that landlords encounter along the renting way. Matched to the question is a suggested way of answering—one that’s accurate and legally safe—and an example of how not to say it, along with an explanation of why. On the companion page, you’ll find audio clips of exchanges between landlords and applicants illustrating similar common conversations.

Put it in writing and keep good records

There’s no way you could get through this list, written by a lawyer, without encountering that supremely lawyer-like admonition, “Get it in writing!”

Five Steps for Successfully Screening New Tenants

To identify the best applicant for your rental, follow these steps. At the end, you’ll have your pick.

Step One: Prescreen on the phone, unless you decide to advertise and host an open house for all who want to come.

Step Two: Screen using an applicant’s answers on your rental application, by looking for an acceptable number of occupants, minimum income, no eviction history, and the like. Rank your applicants.

Step Three: Screen by evaluating the credit report, and rerank if needed.

Step Four: Screen using third-party information, from current and past landlords and employers, which should corroborate information given by the applicant in the application (if you learn more, rerank).

First, by using the worksheets, letters, and checklists in this book, you’ll be steered toward the legally safe path. If you follow the directions, it’s unlikely that you’ll stray. For example, a letter informing an applicant that he’s been rejected due to information on a credit report needs to include specific legal information—and should avoid certain topics. By using the adverse action letter included on the book’s companion page, and entering only the information relevant to the applicant, you’re covered.

Second, written documents are hard evidence that you followed the law. If you’re ever challenged, you won’t need to rely on “he said, I said” evidence. Instead, your filing cabinet full of completed letters and notes of conversations will be admissible evidence in your favor. In particular, the Tenant Information Sheet, a master document for each applicant where you record relevant information you find along the screening path, will show your methodical process and business-like conclusions. Even the files for applicants who dropped out will be helpful evidence, for they will establish that you regularly do business in a legally compliant way.

The chapters in this book that involve step-by-step decision making, and communications with applicants and tenants, have corresponding forms that help you accomplish the tasks. At the start of each chapter, you’ll see a “Landlord’s Forms Library,” which lists them and gives a brief description of each along with record-keeping advice.

Screen all occupants and roommates

When you’re renting a unit to more than one tenant, you may be tempted to screen only one (or two) of the applicants. Or, when an existing tenant wants to bring in a replacement roommate or add a roommate, you may skip the screening, counting on the steadiness of your existing tenant. Failing to thoroughly screen everyone who will live in your rental is a mistake for two reasons:

First, you’re potentially depriving yourself of a source of the rent. Any person who lives on the property can be expected to pay the full rent (how the roommates share the rent is up to them, not you). Practically speaking, you won’t often insist that each roommate be able to shoulder the entire rent, since people live together precisely in order to share expenses. But if you don’t know anything about a tenant’s finances, you’re limiting yourself to the residents whom you have screened. Suppose the screened resident falls on hard times, and his unscreened roommate is unemployed and broke? You have no choice but to terminate the tenancy of both of them. Far better to determine at the outset that the second resident is at least as solvent as the original tenant.

Second, an unscreened tenant imperils the tenancy in other matters besides the rent. If the unscreened tenant causes problems and leaves, or is asked to leave by you, that will be the end of the tenancy for everyone (unless existing tenants can cover the rent or come up with a suitable replacement). Now you’ve got another vacancy. No matter how earnestly your existing tenants vouch for the newcomer, nothing will be lost by checking him or her out.

Cautious landlords will screen both members of a marriage or domestic partnership. You should be on solid ground if you reject the twosome because one has a history that would justify rejection of any tenant—for example, recent and multiple evictions. But suppose you’re faced with a couple composed of one income-earner and another who has no job (perhaps a stay-at-home parent) or brings in a small income. Rejecting this couple could be risky, because of the federal protections that extend to families.

Get professional help or advice when you need it

Though there’s a lot you can do yourself, you may want the advice of a local landlords’ association for help on issues that have practical solutions known by experienced landlords. You may want to consult with a local attorney who’s well versed in landlord-tenant law if you’re unclear on how to implement a particular state law or local ordinance. And, certainly, if you’re sued, you’ll want to engage an attorney for all but the most minor small claims court matters.

How to use the Landlord’s Forms Library

This book includes over 40 forms—worksheets, letters, and checklists—designed to help you organize your thoughts and actions and record your conclusions (or send communications) in a legally safe manner. Your Rental Kit, for example, includes the forms that you’ll give to applicants who want to fill out your rental application. You’ll find a handy list at the start of each chapter, with filled-in samples of each form in the text and copies on this book’s companion page on Nolo.com. (See the appendix for the link.)

Each form is in RTF format, which you can edit and fill in using the word processor on your computer. You can also save each completed form to your computer. The RTF file format allows you to adapt the forms to your own situation. You can add or delete language, adjust margins, and print on your own letterhead.

A few tips on using the forms:

Always review the sample form and instructions in the text.

You can edit the forms according to your specific situation, but if you make major substantive changes, particularly to letters sent to applicants and tenants, it’s a good idea to have your lawyer review them.

When modifying the forms, delete bracketed and italicized prompts next to blank lines (such as “[tenant]” at the beginning of a letter), and just type in the information that’s called for.

If you add a lot of material, you will probably have to work with the margins and layout to make the form fit nicely on your sheet.

Be sure to sign and date every letter, and keep copies of each form for your records. (The icon at the end of each Landlord’s Forms Library tells you how.) If you communicate via email, consider printing a hard copy or, if you’re averse to using paper, be sure that your computer is backed up regularly, or that you’ve saved files to the cloud.

Finally, your careful documentation of rental decisions and communications needs to be organized and stored. Some documents you’ll hope never to need to look at again (like letters to rejected applicants), but others will be useful in the future when it’s time to rerent. For example, having asked prospects to note on their applications how they heard about your vacancy, you’ll learn what advertising methods reached the most people. When you look at the pool of qualified applicants, you’ll learn further which methods reached the most qualified applicants. This information will guide you the next time this unit becomes vacant—and you’ll want to have it at your fingertips. Set up a record-keeping system for filing your papers like that described in the next section, or devise one that works for you.

Why good record keeping is so important—and how to do it

Organize the paperwork generated by your renting efforts by property. For example, if you own one duplex, you’ll have two main sets of files, perhaps separated into filing drawers (one for each rental). Follow this sequence every time you rerent.

Make a new marketing folder every time you begin rerenting efforts

For example, suppose one half of your duplex at 123A First Street becomes vacant and you begin your renting efforts in January 20xx. In your cabinet drawer for that property, you’ll start a new hanging file, “January 20xx Tenant Search.” You’ll put the worksheets, ad copy, and all the other forms you use from this book in that file (using folders as needed) as you advertise and show that rental.

Create a file for applications you receive for this property

Continuing the above example, label another hanging file “January 20xx Applications.” Here, for every applicant, you’ll paper-clip together the Tenant Information Sheet (a master document where you record contact information for the applicant and make notes of conversations, meetings, and results of each screening step), the rental application, the credit report and your review, and any other papers associated with evaluating this prospect. The final paper will be your acceptance (or conditional acceptance) letter, or a rejection letter (for those to whom you must send written rejections). If you find that this file is getting too big (perhaps you’re evaluating several prospects), you can make folders for each, as shown in the illustration below (stagger the file tabs so that when you look at the lineup of files, it’s clear that all of them relate to the same renting effort). If you’re considering an application from several proposed roommates, clip each roommate’s rental application, credit report, and so on together, and put all of these bundles together in one file (labeled “John Anderson et al.” or something similar).

Make a file for your chosen tenants

Label this with the names of the tenants and when their tenancy began, such as, “John and Mary Jones, March 20xx.” You can move the Jones application materials into this file, so that information they supplied on the Tenant Information Sheet (such as an emergency contact) is easily accessible. Following the application documents, you’ll add the lease or rental agreement, a checklist documenting the condition of the property prior to their moving in, and so on. This file will eventually include any letters or notices you’ve sent each other, amendments to the rental document, and requests for repairs, and will end with the end-of-tenancy walk-through that you should do in order to fairly assess any damage or excessive wear and tear. (Hopefully, this file will not end with your termination notice!)

Worksheets and Letters May Affect Current Tenants, Too

Some of the worksheets and forms in this book will be relevant to your current tenants, too. For example, you’ll want to inspect occupied units to determine how much work needs to be done before the next batch of tenants moves in—this will affect your start date for the new tenancy. Your inspection request should go into the file for these tenants, as well as any letters announcing a tenant referral program, and your pre- and post-open-house checklist, which will document the condition of an occupied unit before and after a property showing. When forms, checklists, and letters affect current tenants, be sure to make copies for their files, as well as for the property’s marketing file and applicants’ files.

How long should you keep these files? The Landlord’s Forms Library at the start of each chapter recommends how long to keep different forms. To defend against a fair housing claim, you’ll need them for three years at least, and it’s wise to keep them longer. However, you’ll need to follow special procedures when it comes to keeping credit reports, as explained in Chapter 11.